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Converting Residential Mortgage to Buy-to-Let Guide

Property Saviour » Mortgages » Converting Residential Mortgage to Buy-to-Let Guide

If you’re considering changing your residential mortgage to a buy-to-let mortgage, the first thing to do is get in touch with your lender.

You will need consent to let before renting your property, as not doing so is illegal and constitutes property fraud.

Ask your mortgage lender if there are any fees to be paid and what conditions need to be met for the switch. Consider the pros and cons before making a decision.

Remember, once your house or flat becomes a rental property, you must move out and find alternative accommodation.

Table of Contents

Why change a residential mortgage to a buy to let mortgage?

  • Investment Opportunity: If you are interested in generating rental income from your property and creating a property portfolio, then a buy-to-let mortgage could be a great option for you.
  • Relocation: If you need to move to a new area for work or personal reasons, and you are unsure how long you will be away, then renting your property out instead of selling could be a great alternative. This way, you can keep your home base while giving yourself the option to return should your plans change.
  • Preserving Family Assets: If the property market is not strong and you don’t feel the need to rush to sell your house, you may decide it’s not the right time. Renting it out can help you preserve this asset, with the option to sell it when the market has rebounded or pass it on to your children or other family members later.
  • Emotional Connection to the Property: If you have an emotional attachment to your property due to fond memories, personal history or sentimental reasons, you may prefer to rent it out rather than sell it. Renting it out will enable you to maintain ownership, which could be too difficult emotionally if you were to sell it.
  • Financial Circumstances: If you’re concerned about the affordability of your mortgage, renting out your property can help you explore more budget-friendly alternatives. This could enable you to move to a more affordable area and downsize, thus reducing your living expenses while still keeping the ownership of your property.
  • Capital Appreciation: If you think the value of your mortgaged house will increase over time, you may want to hold onto it and benefit from potential appreciation. You could also purchase a second home or move into rented accommodation.

How to convert your residential mortgage to buy to let?

Switching to a buy-to-let mortgage from a residential one involves multiple essential steps for a smooth transition. Here’s a step-by-step guide to the process:

  1. Check Your Mortgage Terms: Review your current residential mortgage terms and conditions to ensure there are no restrictions on converting the property into a buy-to-let. If you switch mortgages before the fixed-rate period or deal period of your buy-to-let mortgage ends, you may be subject to early repayment charges or exit fees.
  2. Evaluate Financial Viability: Work out if converting the property to a buy-to-let is financially viable. Consider factors such as rental income potential, expected expenses (mortgage, insurance, maintenance), and potential void periods when the property may be vacant.
  3. Contact Your Lender: Reach out to your current mortgage lender to inform them of your intention to switch to a buy-to-let mortgage.
  4. Property Valuation: Your lender may require a property valuation to assess the property’s current market value.
  5. Buy-to-Let Mortgage Application: Apply for the buy-to-let mortgage.
  6. Consider Tax Implications: Understand the tax implications of becoming a landlord. Rental income is taxable, and there are specific tax rules related to buy-to-let properties. It is wise to consult with a tax advisor to ensure you comply with all tax regulations.
  7. Landlord Insurance: Get landlord insurance coverage for the property. Standard residential insurance may not provide sufficient protection for rental properties.
  8. Inform Insurance Providers: Let your existing residential insurance provider know that the property will become a buy-to-let. If you fail to do this, you may be exposed to potential risks as the insurance may be invalid.
  9. Review Tenancy Agreement: If you don’t have tenants yet, create a suitable tenancy agreement that aligns with buy-to-let regulations and provides both you and your tenants with clear terms and responsibilities.
  10. Comply with Regulations: Get familiar with the legal responsibilities and regulations for landlords in your area. These include ensuring certain safety standards are met, deposit protection is in place, selective licensing has been approved, as well as tenant rights.
  11. Management Decision: Choose whether you will manage the property yourself or hire a letting agent to handle tenant requests, maintenance issues, and rent collection.

Property Saviour says…It is essential to shop around, compare deals, and contact multiple lenders when switching to a buy-to-let mortgage.

Each lender may have different interest rates, loan terms, and criteria for buy-to-let mortgages. By approaching other lenders, you can potentially find more competitive rates and terms that better suit your needs.

Can I switch my residential mortgage to a buy to let
Review your current residential mortgage terms and conditions to ensure there are no restrictions on converting the property into a buy-to-let.

Can you switch from a buy to let mortgage to a residential mortgage?

It is possible to switch from a buy-to-let mortgage to a residential mortgage, however, this may be subject to certain conditions and criteria set by lenders.

They will assess your financial circumstances and conduct an affordability check before deciding if you are eligible for a residential mortgage.

This includes looking at your income, credit history, and any outstanding debts to make sure you can afford the mortgage payments. They will require a new valuation of the property to calculate the current market value before approving the switch.

It is worth mentioning that if you switch mortgages before the fixed-rate period or deal period of your buy-to-let mortgage has ended, you may be liable for early repayment charges or exit fees.

You should also be aware that changing the use of a property from a buy-to-let to a residential home may also require you to pay Stamp Duty. For this reason, it is advisable to seek professional advice to make sure you can budget for these expenses.

When you switch from a buy-to-let mortgage to a residential mortgage, the lender will require that you move into the property and occupy it. Not informing them of this can be seen as a breach of contract and, in some cases, the lender may demand immediate full repayment of the mortgage.

Alternatively sell your house to Property Saviour

If you have tried to switch from a residential mortgage to a buy-to-let mortgage and found too many hurdles to overcome, too many conditions to meet and too many fees to pay, it’s time to contact us.

Similarly, if you feel that the obligations and legal responsibilities of being a landlord, plus keeping up with the latest legislation in the Renters Reform Bill, are too much for you to handle, then get in touch with our experienced team today.

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